27 November, 2008
ForexGen | China Downturn Deepens
In India, emerging Asia's other economic titan, financial markets were closed after Islamist militants killed more than 100 people in the commercial capital Mumbai.
Violence in India and political unrest in Thailand highlighted political risk as an extra potential threat to emerging markets battered by the global crisis.
A crisis that began last year with the collapse of the U.S. housing market has spread around the world, bringing several financial institutions to their knees and pushing the United States, Japan and Europe into recession or to the brink of it.
Central banks around the globe have slashed interest rates to try to ease the flow of credit and restart stalled economies.
Economic sentiment in Europe's single currency zone slumped to 15-year lows in November and inflation expectations plunged, boosting the case for a big ECB rate cut next week.
"The euro zone is in a deep recession, upping the pressure on the ECB to cut interest rates further," said Christoph Weil, economist at Commerzbank. "We envisage a first move next week on a scale of 75 basis points to 2.5 percent."
Benchmark rates stand at 3.25 percent in the eurozone, compared with 1.0 percent in the United States.
China's central bank cut interest rates by the biggest margin in 11 years on Wednesday in response to a crisis which is reining in its once runaway growth, bringing worries about social unrest as jobs disappear.
China's State Information Centre, a government think-tank, forecast annual growth would slow to 8 percent this quarter from 9 percent in the third quarter, a cooling from double-digit rates recorded in the past five years.
JOB LOSSES
Job losses are increasing across the globe.
ArcelorMittal, the world's largest steelmaker, said it would slash up to 9,000 positions of largely white-collar staff.
The voluntary redundancy scheme, that could affect about 3 percent of the company's workforce, was aimed at achieving the company's aim of reducing costs by $1 billion.
In Britain, variety store group Woolworths went into administration, jeopardizing thousands of jobs.
The number of German unemployed fell in November to its lowest level since 1992, but officials said a 3-1/2-year labor market boom was fading as recession hits Europe's biggest economy.
Battered global stocks rose to their highest level in nearly two weeks with European equities buoyed by sharp gains in Asia and the United States, dampening demand for safer assets such as government debt.
European government bond yields crept up, ending recent declines that mirrored steep falls in U.S. Treasury yields.
On Wednesday, the U.S. benchmark 10-year yield hit a 50-year low below 3.0 percent after a flood of bleak U.S. economic reports spurred demand for government debt. U.S. markets were closed on Thursday for the Thanksgiving Day holiday.
Some strategists said the equities rally could prove ephemeral and added that the violence and upheaval in Asia added heightened political risk to a volatile mix.
BANKING WOES
Despite trillions of dollars in financial sector bailouts, the world's banking system is still not strong enough to support the economy and avoid a recession, the head of Britain's financial regulator told an Italian newspaper in an interview.
Adair Turner, chairman of Britain's Financial Services Authority, added that the two key issues were bank capital strength and liquidity.
Japan's Norinchukin Bank said it would raise more than $10.5 billion to shore up its capital, the largest fundraising by a Japanese financial firm since the start of the global credit crisis.
Executive board members at Swiss bank UBS have given up their bonuses this year and former executives have returned a total of 70 million Swiss francs ($58.4 million) of payments from the bank, Chairman Peter Kurer told shareholders.
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